A risk-taking surge that began on Wall Street overnight is continuing. Australia’s trade surplus for June, which was reported earlier on Thursday, increased to AUD $17.7 billion from AUD $14 billion, exceeding analysts’ predictions. Australia’s export growth raises the possibility that China’s economy and that of the Asia-Pacific region are more robust than initially assumed.
The Australian Dollar is being supported, maintaining pressure on the US Dollar (DXY) Index as a result of the positive economic statistics. The US Dollar is still up for the week, but prices started to fall in New York trading after the US ISM services market indicator surpassed forecasts and led traders to reduce their betting on a recession. Gold is more appealing to investors who reside outside the ‘States when the US Dollar is lower.
Nevertheless, when the recession’s problems eased, betting for a Federal Reserve rate increase increased little. At the FOMC meeting in the coming month, there is a 50% likelihood of a rate increase of 75 basis points, according to rate traders.
Normally, that would be bad news for bullion, but investors believe that prices will be supported by a robust economy. Midway through last month, breakeven rates, a market-based indicator of future inflation forecasts based on the difference between nominal and inflation-indexed yields, ceased decreasing. The breakeven rates have risen since, particularly the 1, 2, and 5-year rates.
A classic hedge against inflation is gold. The resilience of the precious metal is explained in part by the fact that prospects for price growth have slightly increased after months of decrease. This connection is depicted in the chart below. If the current trend continues, XAU could rise much more as a result. Nevertheless, rising anticipation for a Fed rate hike would probably put pressure on breakeven rates and drive the prices of the precious metal down.
